State of Tennessee forms own captive for property and cyber risks

The State of Tennessee has established its own captive, which it will initially use to insure property and cyber liability policies. The move was made possible by the Tennessee General Assembly enacting legislation permitting the State Treasurer David Lillard to create the state captive with the approval of the Tennessee Board of Claims.

­Administered by the Tennessee Department of Treasury, Division of Claims and Risk Management, the State of Tennessee is self-insured for property and general liability. This covers all state-owned buildings and contents, including the campuses of Tennessee public institutions of higher learning, with a total property value of $31.4 billion as of July 2022.

The state said the Tennessee Captive Insurance Company will allow it to operate with a higher degree of efficiency to insure property losses up to deductible limits, access the wholesale reinsurance markets to reduce premiums, minimize volatility in pricing, and underwrite the state’s own unique risks.

The Division of Claims and Risk also expects the captive to help them insure unique and difficult risks and reduce overall insurance costs. The use of a captive will also allow the State to better evaluate and control the risks of Tennessee state government.

Captive insurance companies in Tennessee are regulated by the Tennessee Department of Commerce and Insurance, which recently granted the nonprofit state captive authority to operate, following its recent approval of the authorizing legislation by the Tennessee General Assembly.

“Commerce & Insurance has advocated for captive insurance as a smart business option to lower costs and increase specifically tailored protections,” said Department of Commerce & Insurance Commissioner Carter Lawrence. “Now that the State is establishing a captive insurance company, taxpayers will benefit from these same advantages.”

The potential savings from the captive will benefit taxpayers as they will be used to write policies with lower premiums, or to return or invest the savings to prepare for future claim payouts and ultimately save taxpayer money. The state captive insurance company initially will only issue property and cyber liability policies, but the State may add other lines of coverage in future years.

“I thank the Tennessee General Assembly for giving our state the ability to operate in a fiscally smart manner,” Treasurer Lillard said. “The Tennessee Captive Insurance Company will save Tennessee taxpayers millions of dollars in the coming years. This is yet another way Tennessee works to keep taxes low for our citizens.”

The legislation, passed unanimously by the 112th General Assembly, was sponsored by Senate Majority Leader Jack Johnson (R-Franklin), and in the House of Representatives by Chairman Gary Hicks (R-Rogersville).

The captive is governed by its Tennessee Captive Insurance Board, composed of Tennessee state officials, including the State Treasurer, the Commissioner of Human Resources, the Commissioner of Finance and Administration, the Comptroller of the Treasury, and the Secretary of State.